Corporate FD’s

What is a corporate fixed deposit?

A corporate (company) fixed deposit is a deposit placed by investors with a company for a fixed term. It carries a prescribed rate of interest.

How are interest payments made?

Interest on corporate fixed deposits are paid on a monthly / quarterly / half yearly / yearly / maturity basis. It is paid either through cheque, or through the Electronic Clearing System (ECS).

When is TDS deducted on the interest earned from corporate fixed deposits?

Tax Deducted at Source (TDS) is deducted if the interest earned on a corporate fixed deposit exceeds Rs. 5,000 in a financial year.

Is there any scope for the principal to appreciate?

No, at the end of the deposit period, the principal (original amount of investment) is returned to the deposit holder.

What is the maximum amount of investment that a company can accept in a corporate fixed deposit?

A Non-Banking Non-Finance Company (Manufacturing Company) can accept deposits subject to the following limits:

– Up to 10% of the aggregate of paid-up share capital, and free reserves, if the deposits are from shareholders, or are guaranteed by the directors, or

– Up to 25% of the aggregate of paid-up share capital and free reserves

A Non-Banking Finance Company can accept deposits up to the following limits :

– An equipment leasing company can accept four times of its net owned fund

– A loan or investment company can accept deposits worth up to one and half times its net owned funds

What is the difference between a fixed deposit and a cumulative deposit?

In a fixed deposit scheme, the interest is payable at specified frequencies. The scheme will be convenient for persons, like pensioners, who require periodical interest payments. In a cumulative deposit scheme, the interest is payable at the time of maturity along with the principal. These schemes are suitable for persons who do not require periodical interest payments, and are looking for money multiplier schemes.

Can an NRI invest in deposits?

Non Resident Indians (NRIs) can invest in fixed deposits with public limited companies in India in certain situations. For example, if the permission to accept deposits from NRIs was already taken by the Indian company, then the investor can invest in such a deposit without taking seeking any permission separately.

However, due to operational constraints, at this moment, FundsIndia has decided not to accept investments in corporate fixed deposits from NRIs.

What is the difference between Form 15G and Form 15H?

Form 15G is meant for Resident Individuals who are below 65 years of age. Form 15H is meant for senior citizens who are 65 years of age, or more, during that financial year.

What is Form 15G/15H? Where can I access it?

Form 15G/15H is a self declaration form that can be submitted by the depositor to avoid Tax Deduction at Source (TDS) if his interest income from corporate fixed deposits is higher than Rs. 5,000, but his total income is below the taxable limit. This form does not require any attestation, except in the case of a left hand thumb impression. In this case, the form has to be attested by a gazetted officer/bank official. Form 15G/15H can be accessed from the ‘Downloads’ section of your account.

On the submission of Form 15G/15H, will there be any query from the income tax department?

Since one copy of the Form 15G/15H is required to be sent to the income tax department, it is possible that the department may raise a query, if they deem it necessary.

What is the investment period for corporate fixed deposits?

Manufacturing companies can accept fixed deposits for a duration of 6 months to 3 years. Non Banking Finance Companies can accept deposits for a duration of 1 year to 5 years. Housing Finance Companies can accept deposits for a period of 1 year to 7 years.